SHARDA TRADING COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN compliance with the order of this Court in I.T.R. No. 18/72, dated September 4, 1975, the Income -tax Appellate Tribunal for short called ("the Tribunal") drew up a statement of case and referred the following question of law for the opinion of this Court :

(2.) THE statement of case relates to the asst. year 1962 -63, the accounting period ending on March 31, 1962. The assessee is an individual being sole proprietrix of M/s Sharda Trading Co. The assessee filed a return of income showing the same at Rs. 15,365 and claimed a loss of Rs. 52,208 as having been carried forward from the asst. year 1961 -62. The return was filed before the ITO, Special Circle IV, New Delhi. The name of the assessee as mentioned in the return was M/s Sharda Trading Company, Proprietrix Smt. Sharda Devi, 6, Rohtak Road, Delhi. The ITO made futile attempts to serve the notice at the address given in the return. Thereafter, he made enquiries which showed that the case of Sharda Trading Co. is a capital (build up) case, i.e., a case in which fictitious assessments were got made through an advocate simply to build up fictitious capital to help businessmen who wanted to introduce their secreted profits in their books. The ITO concluded in the assessment order which he made under S. 144 of the INCOME TAX ACT, 1961 (hereinafter referred to as "the Act"), that the assessee had at no stage produced any evidence to show that the income or loss showed in the return was genuine although she was given reasonable opportunity for that and, as such, the return submitted by the assessee was filed and her income in the previous year as nil. On March 29, 1967, the ITO served a notice on the assessee under S. 147(b) in pursuance of the reopening of the assessment under S. 147. The CIT, later on, initiated proceedings in the case under S. 263 of the Act. A notice dated February 27, 1968, was sent to the assessee. The CIT, however, vide order dated March 8, 1968/March 11, 1968, cancelled the assessment order dated February 24, 1967, passed by the ITO under S. 144 and directed him to make a fresh assessment in accordance with law after making proper enquiries in regard to the assessee's correct income.

(3.) THE main argument of Shri K. P. Bhatnagar, the learned counsel for the assessee, is based on the scope and effect of the reopening of an assessment under S. 147 of the Act. He urges that the service of notice results in the commencement of de novo assessment proceedings which, in their return, are governed by all other relevant provisions of the Act. The notice under S. 148 is deemed to be one under S. 139(2) and the enquiry following such service is one under S. 143. The provisions of the Act including the assessment or reassessment, imposition of penalty or charging of interest, etc., are attracted with the right to the assessee to carry the reassessment ultimately made to appeal, revision or reference. It is contended that it cannot be the case of the Department that proceedings under S. 147 had not been validly initiated or that it would not end in a reassessment. According to the counsel, when once valid proceedings are initiated under S. 147 of the Act, the entire assessment is set aside or ceases to exist. Reliance is placed on the observations made by the Supreme Court in V. Jaganmohan Rao vs. CIT (1970) 75 ITR 373 (SC), wherein it was held that once valid proceedings are started under S. 34(1)(b) of the 1922 Act, the ITO had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year. Reliance is also placed on CIT vs. Assam Oil Company Ltd. (1982) 133 ITR 204 (Cal), wherein it was held that in view of the scheme of the Act, once a reopening is made, the entire assessment is set aside and the income which has escaped assessment, even though there is nothing to show the escapement of assessment, it should be examined and even in a case where the assessee is entitled to any deductions which were not granted in the original assessment, the assessee would be so granted the deduction. The earlier view taken by the Calcutta High Court in Sun Engineering Works (P) Ltd. vs. CIT (1978) 111 ITR 166 (Cal), was quoted with approval. In CIT vs. Standard Motor Products of India Ltd. (1983) 142 ITR 877 (Mad), the Madras High Court reiterated the same view.